Trade and Industry Secretary Alan Johnson said he was preparing for an "orderly retreat" from the doomed Ryton factory in Warwickshire.
Mr Johnson said that Labour would make the same effort with Ryton as it did with Rover last year, and added he was determined it should r emain a centre for manufacturing.
Another meeting with senior management is scheduled for next week, but Mr Johnson said there was nothing more he could do.
He said: "I think they have an extremely solid product and well trained workforce.
"But Peugeot says it would cost too much money to replace the 206 at Ryton, and they are pulling out.
"If that happens we have to make sure it is an orderly retreat, find new jobs and opportunities for the people who worked there, and retraining where necessary.
"We have to make the same effort as we did with Rover last year."
Mr Johnson said he was extremely disappointed with Peugeot's decision which came despite offers of Government aid to attract a new model to replace the 206.
"I am extremely disappointed; we have been in touch with the company for a long, long time about our fears for Ryton. We offered them £14.4 million in regional assistance to help them bring a new platform for the Peugeot 207.
"They said no thank you.
We were aware after that that Ryton was not as safe as we would like; it had only one product and that was an old one.
"They told us that manufacturing would remain at Ryton until 2010. That was their clear message, and that's the basis of the disappointment."
Mr Johnson said he would encourage manufacturing to remain at the site in the future, while the French company was still profitable and had an obligation to the Coventry workforce and local community.
He said: "This is unlike Rover, which went bust, so there was no employer to help out. Here is an employer which is a very profitable company, and they have an obligation to the local area.
"It is the Government's role to help people, give them support, training and opportunity.
"But we cannot tell private companies what to do. This is not a command economy, we can offer information and consultation."
Mr Johnson said the decision was not solely down to the flexible UK labour market, which made it easier for firms to close down operations in the UK while saving others in their home countries.
He said: "This has been terrible news for the workforce and their families but the argument that it is easier to sack people and get rid of them here is not true. It is not quicker to get rid of people in this country.
"It is getting the balance right between protecting workers and creating a situation where it is so difficult to shed jobs that companies don't recruit in the first place."
Mr Johnson said Peugeot-Citroen had cut two shifts from factories in France last year and one shift from a plant in Spain.
The minister said the UK had a strong economy, with eight major car manufacturers operating in this country including some which were expanding, such as Nissan, Land Rover and Mini.
He pointed out that up to 2,000 high quality jobs were being created in Coventry at the site where Jaguar cars used to be built.
Derek Simpson, general secretary of Amicus, repeated his claim that it would be "inconceivable" that workers in France would be laid off on a similar scale.
He complained that good quality, highly skilled jobs were being lost in this country, and workers faced the prospect of moving to temporary or agency work.